United Global Limited - Phillip Securities 2021-03-22: Renewed Energy

UNITED GLOBAL LIMITED (SGX:43P)

United Global Limited - Renewed Energy

United Global Limited (SGX:43P) intends to leverage its new 60:40 JV with Repsol in United Oil Company (UOC) to expand UOC’s scale and reach. UOC’s revenue dropped 18.2% y-o-y in FY20 due to lower manufacturing ASP and trading revenue but gross margins improved 5.3 ppts.
Global lubricant market projected to reach US$182.6bn by 2025. Growth in ASEAN expected to be 2.0% CAGR from 2019 to 2029, with growth accelerating from 2024 as its developing economies recover from the pandemic.

United Global Limited was founded in March 1999 by Wiranto and Jacky Tan as a holding company for wholly-owned subsidiary, United Oil Company (UOC). Operations started in April 1999 when UOC took over a lubricant blending facility from an international oil company. United Global was listed on the Catalist on 8 July 2016.
United Global is an established, independent lubricant manufacturer with a wide range of high-quality, well-engineered products under its in-house “United Oil” brand and a host of third-party brands. It also trades base oils, additives and lubricants.
On 26 November 2019, United Global disposed of a 40% stake in its wholly-owned principal subsidiary, UOC, to Repsol Downstream Internacional S.A., a subsidiary of Repsol S.A.
Apart from lubricants, United Global has four other businesses:
- United Innovations, which makes nano-fibre oil-absorbent materials;
- United Supply Chain, which was set up to diversify the group into logistics;
- United Fuels, which trades petrol-related products; and
- United Renewables, which is exploring opportunities in material recycling and clean energy.
Through its 60%-owned United Oil Company (UOC), its new JV with Madrid-listed oil major Repsol (REP SM), United Global manufactures a wide range of lubricants and specialty fluids for the automotive, industrial and marine industries. These are distributed to about 40 countries.

United Oil Company (UOC) was a 100% subsidiary of United Global before United Global divested a 40% stake in it to Repsol in November 2019. UOC contributed US$5.39mn to United Global’s net profit in FY20. Its revenue fell 18.2% y-o-y to US$89.7mn due to lower manufacturing ASPs and trading revenue. However, gross profit increased 3.8% to US$22.5mn on the back of a 5.3ppt improvement in gross margins to 25.1%.
Manufacturing margins improved with the help of lower raw-material costs while trading benefitted from higher ASPs. United Global’s network of distributors spans 40 countries. It intends to leverage Repsol’s international brand presence to accelerate the growth and regional expansion of UOC.

The global lubricant market is projected to reach US$182.6bn by 2025, from US$157.6bn in 2020. This would translate to a CAGR of 3.0%. ASEAN, where UOC derived about 55% of its FY19 revenue, is expected to remain heavily dependent on lubricants.
Automotive lubricants account for a larger share of the market than industrial lubricants because the region is not yet fully industrialised. Overall lubricant demand in ASEAN is expected to grow at a moderate 2.0% CAGR from 2019 to 2029. Growth rates are expected to gather pace from 2024 to 2029, as ASEAN’s developing economies recover from the pandemic.

United Global has had net cash since its listing in 2016. As at 31 December 2020, United Global's net cash was S$9.7mn.
United Global has also remained debt-free since 4QFY19. This puts United Global in a comfortable position to pursue future acquisitions or business expansion.

Manufacturing accounted for 81.4% of United Global’s FY19 revenue.
After disposing of a 40% stake in UOC, United Global booked UOC contributions for the month of December 2019 and the whole of FY20 under the equity accounting method.
UOC, which is United Global’s lubricant arm, was United Global’s major revenue contributor. After its deconsolidation, United Global’s FY20 revenue consisted only of contributions from its other subsidiaries, specifically its nano-fibre oil-absorbent manufacturing business under United Innovations. These products are sold to another joint venture, M-TechX United Pte Ltd.
After its stake disposal, United Global’s revenue fell 99.8% y-o-y in FY20 to US$175k. Its share of lubricant profits from the JV was US$5.4mn. An increase in other income in FY19 could be attributed to gains from the disposal of subsidiaries of US$24.8mn and gains from the group’s revaluation of its remaining stakes in joint ventures of US$37.2mn.
United Global reported gross losses in FY20 as its nano-fibre oil-absorbent manufacturing business operated way below capacity due to slow orders.

Cost of sales decreased 99.5% y-o-y to US$439k in FY20. This tracked United Global’s revenue decline following the deconsolidation of UOC. Distribution costs also dropped 99.0% to US$23k.

United Global's EBITDA margins were stable at about 10% from FY16 to FY18. Margins surged to 68% following an increase in other income of US$62.5mn in FY19, from US$0.3mn in FY18. They further increased to 2,086% in FY20 as EBITDA was much higher than revenue following the revenue recognition of UOC under share of JV profits.
Gross margins were stable from FY15 to FY19, at 14-19%. However, they fell to a negative 151% in FY20. This reflected the gross loss at its nano-fibre oil-absorbent manufacturing business due to slow orders. United Global was not able to generate sufficient revenue to cover non-cash expenses of depreciation of property, plant and equipment.

United Global does not have a fixed dividend policy. It has been paying dividends every year since listing. United Global proposed a final dividend of S$0.01 for FY20, representing a payout of 73.4%.

After its stake sale of UOC, UOC is booked on its balance sheet as an “investment in joint ventures”. This item increased by 9.7% to US$59.5mn in FY20. An increase in non-current assets was partially offset by a decline in PPE, of 16% from US$2.82mn to US$2.38mn.
United Global maintained its net-cash position from FY16 to FY20 and has been debt-free since 4QFY19.

Cash flow from operations turned from a positive US$21.2mn in FY19 to a negative US$4.0mn in FY20. FCF also turned from positive US$21.2mn in FY19 to negative US$4.0mn in FY20 due to the same reasons. This reflected the deconsolidation of UOC in FY19 and slow orders at United Innovations.
Meanwhile, capex remained low at US$11k in FY20.